Bank of America 2012 Annual Report Download - page 176

174 Bank of America 2012
Other Risk Management Derivatives
Other risk management derivatives are used by the Corporation to reduce certain risk exposures. These derivatives are not qualifying
accounting hedges because either they did not qualify for or were not designated as accounting hedges. The table below presents
gains (losses) on these derivatives for 2012, 2011 and 2010. These gains (losses) are largely offset by the income or expense that
is recorded on the hedged item.
Other Risk Management Derivatives
Gains (losses)
(Dollars in millions) 2012 2011 2010
Price risk on mortgage banking production income (1, 2) $ 3,022 $ 2,852 $ 9,109
Market-related risk on mortgage banking servicing income (1) 2,000 3,612 3,878
Credit risk on loans (3) (95) 30 (121)
Interest rate and foreign currency risk on long-term debt and other foreign exchange transactions (4) 424 (48) (2,080)
Price risk on restricted stock awards (5) 1,008 (610) (151)
Other 58 281 42
Total $ 6,417 $ 6,117 $ 10,677
(1) Net gains on these derivatives are recorded in mortgage banking income (loss).
(2) Includes net gains on interest rate lock commitments related to the origination of mortgage loans that are held-for-sale, which are considered derivative instruments, of $3.0 billion, $3.8 billion and
$8.7 billion for 2012, 2011 and 2010, respectively.
(3) Net gains (losses) on these derivatives are recorded in other income (loss).
(4) The majority of the balance is related to the revaluation of derivatives used to mitigate risk related to foreign currency-denominated debt which is recorded in other income (loss). The offsetting
revaluation of the foreign currency-denominated debt, while not included in the table above, is also recorded in other income (loss).
(5) Gains (losses) on these derivatives are recorded in personnel expense.
Sales and Trading Revenue
The Corporation enters into trading derivatives to facilitate client
transactions, for principal trading purposes, and to manage risk
exposures arising from trading account assets and liabilities. It is
the Corporation’s policy to include these derivative instruments in
its trading activities which include derivatives and non-derivative
cash instruments. The resulting risk from these derivatives is
managed on a portfolio basis as part of the Corporation’s Global
Markets business segment. The related sales and trading revenue
generated within Global Markets is recorded in various income
statement line items including trading account profits and net
interest income as well as other revenue categories. However, the
majority of income related to derivative instruments is recorded
in trading account profits.
Sales and trading revenue includes changes in the fair value
and realized gains and losses on the sales of trading and other
assets, net interest income, and fees primarily from commissions
on equity securities. Revenue is generated by the difference in the
client price for an instrument and the price at which the trading
desk can execute the trade in the dealer market. For equity
securities, commissions related to purchases and sales are
recorded in other income (loss). Changes in the fair value of these
securities are included in trading account profits. For debt
securities, revenue, with the exception of interest associated with
the debt securities, is typically included in trading account profits.
Unlike commissions for equity securities, the initial revenue related
to broker/dealer services for debt securities is typically included
in the pricing of the instrument rather than being charged through
separate fee arrangements. Therefore, this revenue is recorded
in trading account profits as part of the initial mark to fair value.
For derivatives, all revenue is included in trading account profits.
In transactions where the Corporation acts as agent, which include
exchange-traded futures and options, fees are recorded in other
income (loss).
Gains (losses) on certain instruments, primarily loans, that the
Global Markets business segment shares with Global Banking are
not considered trading instruments and are excluded from sales
and trading revenue in their entirety.